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China’s War on Pollution and the Uncertain Fate of “King Coal”

May 30, 2014

Air pollution in China has turned into a major social problem and its mitigation has become a crucial political challenge for the country’s political leadership. Last year, over 25 provinces and 100 major cities in China saw severe smog. In a society where the public is becoming more aware of the adverse environmental consequences of the country’s rapid economic growth, official acknowledgements of the environmental plight have culminated into the notable declaration of a “war on pollution” by Chinese Premiere Li Keqiang on the opening day of the National People’s Congress session in March. In some ways the “war on pollution” is a race against time. As Chinese society continues to develop, the main drivers of its growth are also the core causes of its pollution concerns. The task at hand is to find a way to sustain the economic growth considered vital for social and political stability while at the same time not risking that very same stability with growing public concern over the health impacts of rapidly degrading air quality. It is clear that Chinese policymakers are increasingly aware of the societal threat posed by poor air quality and taking steps to address those concerns. The challenge is not trivial, however, and much of the answer to the problem lies in altering China’s longstanding reliance on coal—a dominant fuel within the Chinese energy sector. China’s ability to alter its coal consumption and transform its energy sector will have significant impacts on global energy markets as well.
Chinese air pollution and its impacts

A study by the U.S. National Aeronautics and Space Administration (NASA) showed that total sulfur dioxide (SO2) emission in China increased by 53% from 2000 to 2006. The situation is getting worse. In some major cities, the daily concentrations of PM2.5—dangerous airborne particles measuring less than 2.5 micrometers in diameter that can come from various types of combustion activities at power plants and motor vehicles—have reached alarming levels, hitting nearly 900 micrograms per cubic meter (μg /m3) in Beijing and 1,000 μg /m3 in Harbin, in 2013. These daily levels are significantly higher than the World Health Organization standard of 25 μg /m3, or the U.S. Environmental Protection Agency standard of 35 μg /m3.

The declaration of war on air pollution sharpened the focus on environmental stewardship and clean energy, which have been increasingly elevated as national policy goals in recent years, as exemplified by the 17 percent reduction target in carbon intensity and the target to reduce the share of coal from 70 percent today to 65 percent by 2015.
Some specific measures are being rolled out following the State Council (China’s equivalent of a cabinet) issuance of the Action Plan for Air Pollution Prevention and Control in September. In order to curb coal consumption, the Action Plan called for the phase-out of coal-fired boilers and industrial furnaces and the conversion of coal-fired plants to gas-fired plants, as well as banned new coal-fired plants except for combined heat and power plants. Additionally, the Action Plan ordered the improvement in vehicle fuel quality by 2017 and called for up to 25 percent reduction in PM2.5 emission level in provinces like Beijing, Tianjin and Hebei by the same year. These measures are supported by the government pledge to invest 1.7 trillion yuan ($277 billion) over the next five years.

Controlling air pollution through upgrading the quality of vehicle fuel has already shown some success. The measures entailed the mandatory upgrade of refining facilities to phase in lower sulfur content gasoline and diesel nationwide. Although oil companies must make large upfront capital expenditure to upgrade their refineries to supply higher quality diesel and gasoline, they can recoup the investment as they are allowed to sell fuels of higher standards at higher prices. Consequently, Beijing, Tianjin and Shanghai began selling the so-called IV standard gasoline (33 percent less sulfur) well before the end-of-2013 deadline. Also, Beijing, Shanghai and Nanjing even skipped adopting the so-called IV standard diesel and began selling the so-called V standard diesel more than a year ahead of deadline.
Why coal is the key

Coal is king in China’s energy system. Today, coal still accounts for nearly 70 percent of China’s primary energy consumption and its electricity consumption. Coal is deeply valued in China for the vital role it has played in alleviating poverty and facilitating the country’s economic development. It is also very difficult to envision a Chinese economic future that does not include a role for coal: China is home to the world’s third largest reserves of recoverable coal. According to the International Energy Agency (IEA), electricity generation in China nearly tripled last decade, and coal accounted for about 80 percent of the incremental output. Moreover, China is the largest producer, consumer, and importer of coal in the world. In 2012, China consumed about half of the world's coal and its import volume at 301 million tons (Mt) was the highest ever to be imported by a country within a single year.

Without advanced clean coal technology, coal use contributes significantly to the degradation of air quality but fuel-switching away from coal has been a tough battle. Specifically, the replacement of coal-fired plants with gas-fired plants hit a wall when winter came and the municipalities found it difficult to secure adequate supplies of natural gas for both residential and non-residential users. These new gas-fired power plants and combined heat and power plants were competing with households for limited gas supply. The gas supply shortages affected cooking and heating in more than 100,000 households in Xi’an.

Nonetheless, officials are moving forward with the mandate to help facilitate the fuel-switching. The National Energy Administration, the agency charged with policy planning, regulation and supervision of the energy sector, is formulating a detailed implementation plan for the aforementioned Action Plan for Air Pollution Prevention and Control for release later this year.

While air pollution issues are still the dominant environmental concern driving reform, climate change measures by the Chinese government are also expected to help alleviate the country’s air pollution situation. To be clear, climate change and air pollution are two distinct challenges, but oftentimes carbon reduction strategies and policies can have complementary benefits of reducing local air pollutants as well. For example, initiatives to map out a possible nation-wide carbon emissions trading system are underway as experimental trading has begun in five of the seven designated cities and provinces (e.g., Shanghai, Guangdong and Hubei). Also, the National Development and Reform Commission—the country’s economic planning agency—is reportedly working to roll out a nation-wide system to register GHG emissions from key enterprises.
The path forward

New policy approaches are only part of the equation. Making existing and future policies more effective and enforced is also a big part of the challenge. To address ineffective implementation and enforcement—two chronic areas of weakness in China’s vast energy sector and, perhaps across its economic system—the central government revised the country’s Environmental Protection Law in late April—the first revision since the law took effect in 1989. Under the revised law, which will take effect on January 1, 2015, individuals that commit environmental wrongdoings will receive harsher punishments, including higher fines, detentions and criminal charges. Moreover, local officials may be demoted or fired if they are found guilty of misconduct, including data falsification and failure to publicize environmental information required under the law. Additionally, environmental organizations will be allowed to file lawsuit against polluting entities, including local governments.

With some serious air quality problems, all hands appear to be on deck as the Chinese leadership strives to steer the country’s energy system to a significantly less energy-intensive and coal-dependent one. While King Coal’s reign will continue for some years to come, the host of efforts underway is likely to have a material impact on when the country’s coal consumption may peak and the consumption trajectory thereafter.
Jane Nakano is a fellow with the Energy and National Security program at the Center for Strategic and International (CSIS). Hong Yang is a research intern with the Energy and National Security Program at CSIS.